BP looks to 2013 for resetting its course

British oil giant is eager to move beyond Gulf spill

BP may be able to turn the legal corner in 2013 on its oil spill liability and focus fuller attention on oil and gas exploration and production plans in Russia, the North Sea, the Americas and, even, the Gulf of Mexico.

But for it to regain the footing with its peers that it has lost during the turbulent three years since the Macondo well and Deepwater Horizon rig disaster, more aggressive moves like a broader restructuring or a merger will be necessary, industry observers say.

The page could finally start to turn in the coming year.

BP is "still a weaker company versus its peers, and they have to prove - and this is something that doesn't happen overnight or even in a couple years - that they can compete, that they can be mistake-free, that they can stay out of trouble," said Lysle Brinker, director of energy equity research at analysis and consulting firm IHS.

The British company has been on a turnaround mission since an undersea well it owned blew out in the Gulf off Louisiana, causing a rig explosion that killed 11 workers and led to the worst U.S. offshore oil spill ever.

Quarterly earnings reports and annual investor conferences have often started with updates on the tens of billions of dollars it has spent on cleanup costs and compensating victims, and the many assets it has sold off to cover its tab and refocus on higher-performing ventures. Those asset sales could affect BP's future earnings.

BP wants to talk about something else, and it may get more of a chance to do that in 2013.

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That would allow it to focus more on its many global business ventures.

Among its plans in 2013:

1BP is overhauling its Russian business by selling its 50 percent stake in TNK-BP to Russian oil company Rosneft for cash and stock. The deal, which is expected to close in the first half of the year, calls for BP to receive $12.3 billion in cash and an 18.5 percent stake in Rosneft. That would bring its total Rosneft holdings to 19.75 percent.

1Exploring for new oil and natural gas around the world is on tap for BP. Major projects are on- going or planned in Brazil, Trinidad, Canada and Angola. It is operating rigs in the Gulf of Mexico again.

1BP is spending billions of dollars to upgrade its refinery in Whiting, Ind., to be able to process heavier crudes. The work is more than 80 percent complete, and the company says it is on track to wrap up in the second half of the year.

1The company in the coming year expects to complete the shedding of $38 billion in assets. As of early December, the total of assets sold, excluding the proposed Rosneft deal, was $37 billion.

More hurdles

BP still faces some hurdles in the coming year, on the legal and business front.

In late January, BP is scheduled to plead guilty in federal court in New Orleans to criminal charges, including manslaughter and obstruction of Congress, stemming from the 2010 Gulf disaster. It has agreed to pay a $4 billion criminal penalty. Relatives of some of the rig workers who were killed have opposed the deal. Most legal observers believe U.S. District Judge Sarah Vance will approve the pact, though if she rejects it, BP could withdraw its plea and go to trial.

Civil trial

The following month, a civil trial is scheduled for BP and its partners in the rig that would seek to determine percentages of fault for the various companies, who are also suing each other. BP still faces billions of dollars in potential civil penalties from the U.S. government. A civil settlement over fines and penalties so far has been elusive.

One way or the other, BP could get a much clearer view of its total liability for the spill in 2013, with the major civil and criminal issues moving toward a climax. The company already has reached a settlement with tens of thousands of individuals and businesses affected by the spill, and a judge has approved the economic and property damages pact.

Still, Morningstar analyst Stephen Simko said that except for the Macondo settlements, "there aren't a ton of positive catalysts in the near-term for BP."

"I'm a bit worried that the market isn't ready for the earnings drip coming in 2013-2014 from all of the asset sales."

These concerns have heightened speculation that BP may have to do something bolder to create shareholder value. There has been renewed speculation in recent weeks that it could be an acquisition target.

The chief executive of Royal Dutch Shell, Peter Voser, fueled the recent talk when he told a German newspaper that the company had considered trying to acquire BP in the past two years, though he declined to say if Shell is currently interested in BP.

BP's stock price is not the discount it was at the height of the oil spill, but it is still relatively cheap compared with the stocks of its peers.

And with the full scope of its oil spill liability starting to come into clearer focus, there could be renewed attention given to a merger.

Said IHS' Brinker, "Whether it's a merger with another company, or a more aggressive restructuring, there are still huge political barriers, but they are not impossible."